T-Mobile battles the subsidy beast (by raising prices)

Speaking at a Geekwire conference earlier this month, T-Mobile CMO Cole Brodman said if he had a magic wand he would use it to eliminate subsidies in the wireless industry because giving huge discounts in exchange for two-year contracts basically de-values mobile technology. His point was that if you charge me $50 for a $500 smartphone, you’re teaching me that the sophisticated mobile computer in my hand is just a mere throw-away device.

That’s bold talk from a carrier, especially from T-Mobile since it aggressively subsidizes it handsets. But nobody really expected T-Mobile to do anything about it. As Brodman admitted in his Geekwire talk, handset subsidies are here to stay, no matter how much wireless carriers claim to disdain them. But it appears T-Mobile does plan to doing something about subsidies: it’s taking the unusual step of raising prices on customers that opt for phone discounts.

According to documents obtained by TmoNews, in April T-Mobile plans to raise prices by $5 on two of its most popular mobile data bundles, but only on new customers who take a discount device from the carrier. Its value bundles, which allow a customer to pay the unsubsidized price of a phone up front or in installments (also known as bring your own device), will remain the same price and are already substantially cheaper then “Classic” subsidized plans. The bottom line is that new customers who fall for the lure of a cheap smartphone could wind up paying as much as $20 more a month for a voice and data plan than a customer who opts to fork over the device’s true cost.

Price increases are usually never good, but as TmoNews’ David Beren claimed, this may be the exception, and I happen to agree with him. Subsidized phones are truly never free. Operators just factor in the cost of the device into the contract. We wind up paying higher prices per megabyte and per voice minute because of it. The problem is once those contracts expire and operators have made back their customer acquisition costs, they don’t charge lower rates.

T-Mobile is removing the shadowy accounting veil from those policies, showing – quite aggressively – that a good deal of the cost of our rate plans is really just a mortgage payment against our phones. Do the math yourself: $20 times 24 months equals $480 in savings over the life of a contract. Meanwhile you can buy T-Mobile’s newest smartphone, the Nokia Lumia 710, for an unsubsidized price of $350. Suddenly that ‘free’ subsidy doesn’t seem like such a great deal anymore.